Interest rates expected to rise as retail sales jump

On a previous article we told you that gross mortgage lending fell in the month of May, but also in the same month retail sales soared at its fastest rate in almost two decades, this has lead to speculation of an interest rate could go up. Although we know that food prices in the UK have rising sharply, there has still been sharp increases in food sales as well as clothing. According to Reuters, retail sales were up by 3.5 percent in May; this could have had something to do with the sunny weather.

Philip Shaw, chief economist at Investec has said “I’m staggered the figures are on a completely different plane compared to what markets were expecting.” With the news that there could be a series of interest rate rises, the markets have reacted quickly to the news, the pound has raised almost a full cent against the dollar. Many experts forecast that the Bank of England would not introduce rate rises until later this year, but Bank of England Governor, Mervyn King, has said that he will have to start bringing in rate increases to slow down inflation.

As many stores report that sales have risen in May, other stores such as Woolworths and Sainsbury’s have complained that things have been a little challenging for them. Some analysts believe that the data about retail sales are up might not be that accurate, HBOS economist, Mark Miller, has said “It may very well be a weather-related issue for this particular month, but it’s very difficult to see a strong trend in retail sales persisting throughout the year.”

We will now have to wait and see what the retail sales figures are for June; I predict that sales would have fallen. Within the past month we have seen huge increases in the price of fuel, food, and now there is talk that the price of air fairs could increase by a further 40%. It looks as though the days of cheap flights could become a thing of the past.